Thursday, March 22, 2007

A Quibble or Two About What Smith Meant

Just in case anybody gets the impression that Lost Legacy only criticises the Left, I offer a couple of letters from farther along the spectrum nearer the ‘middle’. One is from Dr Eamonn Butler, Director of the Adam Smith Institute, a tolerably known think-tank with an enormous readership and close contacts with many MPs disposed favourably to freer markets.

The Guardian (21 March 21) carries correspondence from readers about Tristram Hunt’s piece I commented on earlier this week. Dr Butler comments:

“I am delighted that Gordon Brown wants to claim Adam Smith as his own (Why Brown reveres the man on the new £20 note, March 19). But any attempt to kidnap an 18th-century figure as a 21st-century political mascot is forlorn. Smith wrote before the industrial revolution transformed things, before capitalism (he never mentions the word) or organised trade unions, before state health or pensions, when favoured trades enjoyed state monopolies, and when the idea of a government spending over 40% of the nation's wealth would have seemed the greatest tyranny.

Tristram Hunt writes that Smith was no "laissez-faire free-marketeer". Half right. Smith did not support laissez-faire and, again, never mentions the term. Yet he was a free-marketeer. He believed that voluntary exchange in free markets benefited both buyers and sellers. But he knew that merchants were skilled at using political power to distort free markets and limit their competition; so he saw a role for the law in keeping markets open, honest and free.

Smith maintained that this free-market system spread prosperity throughout society, particularly to the poor. True, his few mentions of the "invisible hand" are oblique, but the idea pervades every line of his writings - that the free interaction of human beings, though done solely out of self-regard, nevertheless produces a general benefit. A far surer route to peace and prosperity, he thought, than the assertions of enthusiasts or the commands of governments.”

CommentAll but the sentence is OK: “True, his few mentions of the "invisible hand" are oblique, but the idea pervades every line of his writings - that the free interaction of human beings, though done solely out of self-regard, nevertheless produces a general benefit.”

A small but important quibble. I would prefer to see a qualification inserted between ‘nevertheless produces’. Something like, ‘could produce’ or ‘often produces’, rather than leaving it as if it ‘always’ produces. The self-interests of individuals may have many different motives, many benign, which have the result stated – society is better off, but they may also be malign (monopolistic, protectionist, a ‘conspiracy to raise prices’, even support for wars and colonialism), and many of them specifically stated by Smith and not left for the reader to conclude separately. In many cases, we could add externalities like pollution, careless and unsafe working practices, work place ‘tyrannies’ and other abuses.

Markets are run by people and people are ‘weak and imperfect’. They may also be consumed with greed, avarice, a lack of ‘common humanity’ (a phrase of Smith’s) and whatever comes under the rubric of the ‘vile rulers of mankind’. OK, I am sure Dr Butler realizes this and the need to keep the word count down imposes limitations of including qualifications.

Another correspondent writes to The Guardian:

“Tristram Hunt neatly illustrates how Adam Smith expresses the lofty ideals of the European Enlightenment in the homely terms applicable to the butcher, the brewer and the baker, such as those of Kirkcaldy. However, this encapsulates not only the relevance but also the limitations of Smith's message for today. For in retrospect, the outstanding legacy of his epoch did not concern such domestic issues at all, being rather the opening out of the great divergence in fortunes between the rich and poor countries and peoples of the world, not least the extension of European domination over those peoples of other continents to whom Smith referred to as "naked savage".

Dr Hugh Goodacre (University College London)

CommentThe thesis implied in Dr Goodacre’s last line is dubious. Living standards in the 18th century across the world had not changed much for the majority in two thousand years, probably as many as ten thousand years, when agriculture appeared in parts of Europe, Asia and north Africa, which contributed (caused?) a rise in per capita consumption enabling populations to grow.

From the 16th-18th centuries, domestic consumption in certain countries began to rise, ‘slowly and gradually’, an event of historic interest, because unlike previous changes, this time it continued. Combined with technological and knowledge enhancements that led to further changes. The re-appearance of commercial society began to reverse the steady decline experienced since the fall of Rome in the 5th century.

Into this context, Smith’s use of the ‘butcher, brewer, and baker’ example was connected to the operation of exchange by voluntary negotiation, which was the driving force for the gradual pacification of inter-communal violence and became a viable alternative to plunder. Exchange is very much central to markets and inter-human relationships today. Smith’s ‘homely’ example is still not appreciated by readers of Wealth of Nations (for example the daily reminders we get that readers still see it as a manifestation of ‘greed’ – because they read it too fast).

That ‘rich’ countries diverged from ‘poor’ had nothing to do with implied racialism in the use of terminology, such as in ‘naked savages’ for the inhabitants of Hunting societies. This referred to the differences in the modes of production in countries with developed divisions of labour (the manufacture of the labourer’s common woolen jacket compared to a ‘naked savage’ who was poorly clothed in socieies without that division of labour). It was reflected in the short life spans of the North American ‘Indian’ and African ‘prince’, absolute rulers of ‘ten thousand’ of their brethren (Wealth of Nations, Chapter 1).

Every author of the time used this expression. If Dr Hugh Goodacre had been alive at the time and working at any of Oxford, Cambridge, Edinburgh, Glasgow, St Andrews or Aberdeen universities, he too would have used the phrase. If he had taught in Scotland, he would also have known that the Scottish courts declared slavery illegal in 1778, long before Wilberforce began his campaign against it.

The racialist overtones to the ‘Noble savage’ were a 19th century development from the USA (Ellingson, T. 2001. The Myth of the Noble Savage, University of California), for which Smith was blameless, though not Thomas Carlyle (1848).

The ‘great divergence’ came about because some countries got onto the development path and the rest didn’t. But the former was not a consequence of the latter. The politics of all countries are part of theie growth, no growth paths. Colonialism was not recommended by Adam Smith – he didn’t think it was worth the cost in wars (and how right he was in that). Colonialism is an inevitable extension of mercantile commerce, which Smith railed against in Book IV of Wealth of Nations. Governments cause colonialism to be affected, not Smithian markets.